Working Papers

This paper proposes a methodology for defining urban markets based on economic activity detected by satellite imagery. We use nighttime lights data, whose use in economics is increasingly common, to define urban markets based on contiguous pixels that have a minimum threshold of light intensity. The coarseness of the nightlight data and the blooming effect of lights, however, create markets whose boundaries are too expansive and too smooth relative to the visual inspection of actual cities. We compare nightlight-based markets to those formed using high-resolution daytime satellite imagery, whose use in economics is less common, to detect the presence of builtup landcover. We identify an order of magnitude more markets with daytime imagery; these markets are realistically jagged in shape and reveal much more within and across-market variation in the density of economic activity. The size of landcover-based markets displays a sharp sensitivity to the proximity of paved roads that is not present in the case of nightlight-based markets. Our results suggest that daytime satellite imagery is a promising source of data for economists to study the spatial extent and distribution of economic activity. Download the paper.

This paper examines how prices, markups, and marginal costs respond to trade liberalization. We develop a framework to estimate markups from production data with multiproduct firms. This approach does not require assumptions on how firms allocate their inputs across products. We exploit quantity and price information to disentangle markups from quantity-based productivity, and then compute marginal costs by dividing observed prices by the estimated markups. We use India's trade liberalization episode to examine how firms adjust these performance measures. Not surprisingly, we find that trade liberalization lowers factory-gate prices and that output tariff declines have the expected pro-competitive effect. However, the price declines are small relative to the declines in marginal costs, which fall predominantly because of the input tariff liberalization. The reason for this incomplete cost pass-through to prices is that firms offset their reductions in marginal costs by raising markups. Our results demonstrate substantial heterogeneity and variability in markups across firms and time and suggest that producers benefited relative to consumers, at least immediately after the reforms. Download the paper.

Papers

We designed and implemented a new joint seat allocation process for undergraduate admissions to over 500 programs spread across 80 technical universities in India, including the prestigious Indian Institutes of Technology (IITs). Our process is based on the well known Deferred Acceptance algorithm, but complex affirmative action seat reservations led us to make a number of algorithmic innovations, including (i) a carefully constructed heuristic for incorporating non-nested common quotas that span multiple programs, (ii) a method to utilize unfilled reserved seats with no modifications to the core software, and (iii) a robust approach to reduce variability in the number of reserved category candidates admitted, while retaining fairness. Our new seat allocation process went live in 2015, and based on its success, including significant and provable reduction in vacancies, it has remained in successful use since, with continuing improvements.
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In 2013, a new law required Indian firms, which satisfied certain profitability, net worth and size thresholds, to spend at least 2 percent of their net income on CSR. We exploit this natural experiment to isolate the shareholder value implications of CSR activities. Using an event study approach coupled with a regression discontinuity design as the identification strategy, we find that the law, on average, caused a significant drop in the stock price of firms forced to spend money on CSR, consistent with the idea that firms voluntarily choose CSR levels to maximize firm value. However, firms with greater agency costs and advertisement spending are not negatively affected by the mandatory CSR rule. Our results potentially clarify the direction of causality underlying decades of mixed findings on the association between CSR and firm value. Read the paper.

It’s common belief that India’s breakneck growth has left its poorest citizens behind. From 2001 through 2011, GDP expanded by 8.1 percent annually — an impressive rate by any measure over a sustained period. But the World Bank and other leading globe watchers worried that the benefits of growth weren’t reaching the country’s neediest people. “Given the recent record, it is simply not the case that continued rapid economic growth will automatically translate to commensurate improvements on human development outcomes,” concluded the World Bank’s 2011 Perspectives on Poverty in India. But in fact, the opposite is true, says Megha Mukim, formerly with the London School of Economics and now an economist with the World Bank. Mukim and Arvind Panagariya, a Chazen Senior Scholar, studied poverty rates across all of India’s social and economic strata. Their paper shows that not only have these groups benefited from liberalized trade policies but that rising incomes among these groups are helping to narrow India’s economic gaps. Read a summary of the research.

Like small retailers around the world, India’s mom-and-pop shops fear being crushed by big-box stores. But contrary to popular belief, the arrival of international, multibrand retailers would actually benefit small stores, which make up 90 percent of the country’s retail sector, according to research from Rajeev Kohli, a Chazen Senior Scholar and the Ira Leon Rennert Professor of Business, and Jagdish Bhagwati, a Chazen Advisor and the Arthur Lehman Professor of Economics at Columbia Business School. Read a summary of the research.

Abstract: This paper exploits India's rapid, comprehensive, and externally-imposed trade reform to establish a causal link between changes in tariffs and firm productivity. Pro-competitive forces, resulting from lower tariffs on final goods, as well as access to better inputs, due to lower input tariffs, both appear to have increased firm-level productivity, with input tariffs having a larger impact. The effect was strongest in import-competing industries and industries not subject to excessive domestic regulation. While we found no evidence of a differential impact according to state-level characteristics, we observe complementarities between trade liberalization and additional industrial policy reforms. Download the paper.

Abstract: New goods play a central role in many trade and growth models. We use detailed trade and firm-level data from India to investigate the relationship between declines in trade costs, imports of intermediate inputs, and domestic firm product scope. We estimate substantial gains through access to new imported inputs. Moreover, we find that lower input tariffs account on average for 31 percentof the new products introduced by domestic firms. This effect is driven to a large extent by increased firm access to new input varieties that were unavailable prior to trade liberalization. Download the paper.

Abstract: This paper provides evidence on the patterns of multiproduct firm production in a large developing country, India, during a period that spans market reforms. In the cross-section, multiproduct firms in India look remarkably similar to the US counterparts. The time-series patterns, however, exhibit important differences. In contrast to evidence from the United States, product churning, particularly product rationalization, is far less common in India. We find no link between product rationalization and output tariff declines following India’s 1991 trade liberalization. The lack of “creative destruction” is consistent with the role of industrial regulation in preventing an efficient allocation of resources. Download the paper.

Abstract: In this article, we dissect changes in the composition of Indian imports following its 1991 trade liberalization to illustrate the potential scope for previously unavailable inputs to bolster the performance of domestic firms. The analysis reveals that trade reform spurred imports of previously unavailable products and varieties in many products that arguably can be characterized as important inputs for manufacturing firms. New imported inputs in large extent originated from more advanced countries and new imported varieties exhibited higher unit values relative to existing imports. These findings are consistent across narrow classifications of inputs and therefore indicative that India’s trade liberalization relaxed the technological constraints faced by Indian firms under import substitution policies. This more descriptive analysis provides further confirmation of the importance of the extensive product margin in input trade. Download the paper.